Module Eight Notes: • Word-process your solutions within this template. Copy and paste tables from Excel as needed. • Show all steps used in arriving at the final answers. Incomplete solutions will receive partial credit. Problem One The financial statements for a company included the following information: Common Stock $1,750,000 Retained Earnings $950,000 Net Income $1,250,000 Shares Issues $110,000 Shares Outstanding $90,000 Dividends Declared and Paid $900,000 The common stock was sold at a price of $30 per share. Complete the following: (a) What is the amount of capital in excess of par? (b) What was the amount of retained earnings at the beginning of the year? (c) How many shares are in treasury stock? (d) Compute earnings per share. Problem Two Suppose a company had the following stock outstanding and retained earnings on December 31, 2011. Common Stock (par $7; outstanding, 22,000 shares) $154,000 Preferred Stock, 10% (par $10; outstanding, 6,000 shares) $60,000 Retained Earnings $179,000 Suppose that the preferred stock is noncumulative, and the total amount of dividends is $29,000. Compute the amounts of dividends, in total and per share, that would be payable to each class of stockholders. Problem Three At December 31st, 2011, the records at a corporation provided the following selected and incomplete data: Common stock (par $1; no changes during the year) Shares authorized, 3,000,000 Shares issued, ?: issue price $65 per share Shares held as treasury stock, 85,000 shares, cost $40 per share Net income, $3,700,000 Common stock account, $1,400,000 Dividends declared and paid; $2 per share. Retained Earnings balance, January 1, 2011, $74,700,000 Find the following: (a) the shares issued (b) the shared outstanding (c) the balance in the Capital in Excess of par account (d) the EPS on net income (e) The total dividends paid on common stock during 2011 (f) The amount of treasury stock Problem 4 On August 31, 2010, a company purchased 10,000 shares of stock for $30 per share. Management recorded the stock in the securities available for the sale portfolio. The following information pertains to the price per share of stock: Price 12/31/2010 $35 12/31/2011 $34 12/31/2012 $37 Prepare journal entries for the investments in SAS and the Net Realized losses/gains for each date given. Then compute the balance in the Net Unrealized Losses/Gains. Problem 5 The balance sheet of Werther Company showed the following data about its common stock, par $1: authorized shares, 10,000,000; outstanding shares, 4,300,000; and issued shares 4,700,000. Therefore, the number of treasury stock shares was: A. 0 B. 4,700,000 C. 4,300,000 D. 400,000 Problem 6 During 2008, Thomas Corporation repurchased some shares of its own common stock. It records treasury stock at cost. What effect did this transaction have on 2008 stockholders' equity and earnings per share, respectively? A. Stockholder’s Equity Earnings Per Share Decrease No effect B. Stockholder’s Equity Earnings Per Share Increase No effect C. Stockholder’s Equity Earnings Per Share Decrease Decrease D. Stockholder’s Equity Earnings Per Share Decrease Increase Problem 7 On December 15, 2009, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2010 of $.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 2009, Cross Corporation should: A. Make no journal entry because the event had no effect on the corporation's financial position until 2010. B. Decrease retained earnings $1.6 million and increase contributed capital $1.6 million. C. Decrease retained earnings $1.6 million and increase liabilities by $1.6 million. D. Decrease cash $1.6 million and decrease retained earnings $1.6 million. Problem 8 Cornhusker Corporation plans to raise $10 million cash on January 1, 2009, by issuing either bonds payable (8% interest rate) or cumulative preferred stock (8% dividend rate). The accounting period ends December 31. How would the annual interest amount or annual preferred dividend amount (if paid) affect the net income for the year ended December 31, 2009? A. Net income would be reduced by the annual interest and by the preferred stock dividends. B. Net income would be reduced by the interest but not by the preferred stock dividends. C. Net income would not be reduced by the annual interest nor by the preferred stock dividends. D. Net income would be reduced by the preferred dividends but not by the interest. Problem 9 Survivor Company was formed on January 1, 2008 by selling and issuing 20,000 shares of common stock at $15 per share. On December 1, 2009, the company declared a cash dividend of $10,000 which will be paid in cash on January 15, 2010. The annual accounting period ends December 31. A. Give the journal entry to record the sale and issuance of the common stock on January 1, 2008, for each of the following independent assumptions: The common stock has a par value of $10 per share. The common stock was no par with a stated value of $5 per share. The common stock was no par and no stated value. B. Give the journal entry to record the dividend declaration on December 1, 2009. C. Show the journal entry to record payment of the dividend on January 15, 2010. Problem 10 Piano Company owns 55% of the voting common stock shares of Keys Corporation. Which of the following is true? A. The investment would be accounted for using the equity method. B. The investment would be accounted for by consolidation. C. The investment would be accounted for under the market value method. D. The investment would be accounted for under the amortized cost method. Problem 11 Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1, 2009, at $40 per share as a long-term investment. The records of Burke Corporation showed the following on December 31, 2009: Net income $575,000 Dividends declared and paid during December, 2009 $30,000 Market price per share $38 Gilman Company should report the following on the December 31, 2009, balance sheet for its investment in Burke Corporation. A. $4,218,000 B. $4,000,000 C. $4,124,000 D. $3,800,000 Problem 12 Lyrical Company purchased equity securities for $500,000 and classified them as trading securities on September 15, 2009. At December 31, 2009, the current market value of the securities was $481,000. How should the investment be reported in the December 31, 2009 financial statements? A. The investment in trading securities would be reported in the balance sheet at its $481,000 market value. B. The investment in trading securities would be reported in the balance sheet at its $500,000 cost. C. A realized holding loss on the trading securities of $19,000 would be reported on the income statement. D. The investment in trading securities would be reported in the balance sheet at its $481,000 market value and a realized holding loss on the trading securities of $19,000 would be reported on the income statement. Problem 13 On January 1, 2009, Short Company purchased as an available-for-sale investment, 20,000 shares (15% of the outstanding voting shares) of Daniel Corporation's $ 1 par value common stock at a cost of $50 per share. During November 2009, Daniel Corporation declared and paid a cash dividend of $2 per share. At December 31, 2009, end of the accounting period, Daniel Corporation's shares were selling at $48. At December 31, 2009, the financial statements for Short Company should report the following amounts: A. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $1,000,000 $40,000 $40,000 B. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $960,000 Zero Zero C. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $1,000,000 $80,000 Zero D. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $960,000 $40,000 $40,000 Problem 14 On January 1, 2009, Heitzman Company purchased the following shares as a long-term investment in available-for-sale securities: Corporation Shares Percent Outstanding Cost per Share Maars 10,000 common (no par) 5% $25 Nassif 2,000 preferred (par $10) 2% $50 The market value of the stocks subsequently were as follows: - Dec. 31, 2009 Dec.31, 2010 Maars Corporation common stock $24.00 $27.50 Nassif Corporation preferred stock $51.00 $50.50 Calculate the balance in the account, "Allowance to Adjust Long-term Investments to Market," on A. December 31, 2009 and B. December 31, 2010.

Module Eight

 

Notes:

 

• Word-process your solutions within this template. Copy and paste tables from Excel as needed.
• Show all steps used in arriving at the final answers. Incomplete solutions will receive partial credit.

 

Problem One

The financial statements for a company included the following information:

Common Stock	$1,750,000
Retained Earnings	$950,000
Net Income	$1,250,000
Shares Issues	$110,000
Shares Outstanding	$90,000
Dividends Declared and Paid	$900,000

The common stock was sold at a price of $30 per share.

Complete the following:

(a)    What is the amount of capital in excess of par?

(b)    What was the amount of retained earnings at the beginning of the year?

(c)    How many shares are in treasury stock?

(d)    Compute earnings per share.

 

Problem Two

Suppose a company had the following stock outstanding and retained earnings on December 31, 2011.

Common Stock (par $7; outstanding, 22,000 shares)	$154,000
Preferred Stock, 10% (par $10; outstanding, 6,000 shares)	$60,000
Retained Earnings	$179,000

 

Suppose that the preferred stock is noncumulative, and the total amount of dividends is $29,000.

Compute the amounts of dividends, in total and per share, that would be payable to each class of stockholders.

 

 

 

Problem Three

 

At December 31^st, 2011, the records at a corporation provided the following selected and incomplete data:

Common stock (par $1; no changes during the year)
Shares authorized, 3,000,000
Shares issued, ?: issue price $65 per share
Shares held as treasury stock, 85,000 shares, cost $40 per share
Net income, $3,700,000
Common stock account, $1,400,000
Dividends declared and paid; $2 per share.
Retained Earnings balance, January 1, 2011, $74,700,000

 

 

Find the following:

(a)    the shares issued

(b)    the shared outstanding

(c)    the balance in the Capital in Excess of par account

(d)    the EPS on net income

(e)    The total dividends paid on common stock during 2011

(f)     The amount of treasury stock

 

 

Problem  4

On August 31, 2010, a company purchased 10,000 shares of stock for $30 per share. Management recorded the stock in the securities available for the sale portfolio. The following information pertains to the price per share of stock:

	Price
12/31/2010	$35
12/31/2011	$34
12/31/2012	$37

 

Prepare journal entries for the investments in SAS and the Net Realized losses/gains for each date given. Then compute the balance in the Net Unrealized Losses/Gains.

Problem  5	The balance sheet of Werther Company showed the following data about its common stock, par $1: authorized shares, 10,000,000; outstanding shares, 4,300,000; and issued shares 4,700,000. Therefore, the number of treasury stock shares was:
	A. 0 B. 4,700,000 C. 4,300,000 D. 400,000

 

Problem 6
	During 2008, Thomas Corporation repurchased some shares of its own common stock. It records treasury stock at cost. What effect did this transaction have on 2008 stockholders' equity and earnings per share, respectively?
	A. Stockholder’s Equity Earnings Per Share Decrease No effect B. Stockholder’s Equity Earnings Per Share Increase No effect C. Stockholder’s Equity Earnings Per Share Decrease Decrease D. Stockholder’s Equity Earnings Per Share Decrease Increase

 

Problem  7
	On December 15, 2009, the board of directors of Cross Corporation declared a cash dividend, payable on January 8, 2010 of $.80 per share on the 2,000,000 common shares outstanding. The accounting period ends December 31. Because of this action, on December 15, 2009, Cross Corporation should:
	A. Make no journal entry because the event had no effect on the corporation's financial position until 2010. B. Decrease retained earnings $1.6 million and increase contributed capital $1.6 million. C. Decrease retained earnings $1.6 million and increase liabilities by $1.6 million. D. Decrease cash $1.6 million and decrease retained earnings $1.6 million.

 

Problem  8
	Cornhusker Corporation plans to raise $10 million cash on January 1, 2009, by issuing either bonds payable (8% interest rate) or cumulative preferred stock (8% dividend rate). The accounting period ends December 31. How would the annual interest amount or annual preferred dividend amount (if paid) affect the net income for the year ended December 31, 2009?
	A. Net income would be reduced by the annual interest and by the preferred stock dividends. B. Net income would be reduced by the interest but not by the preferred stock dividends. C. Net income would not be reduced by the annual interest nor by the preferred stock dividends. D. Net income would be reduced by the preferred dividends but not by the interest.

 

	Problem  9
	Survivor Company was formed on January 1, 2008 by selling and issuing 20,000 shares of common stock at $15 per share. On December 1, 2009, the company declared a cash dividend of $10,000 which will be paid in cash on January 15, 2010. The annual accounting period ends December 31. A. Give the journal entry to record the sale and issuance of the common stock on January 1, 2008, for each of the following independent assumptions: The common stock has a par value of $10 per share. The common stock was no par with a stated value of $5 per share. The common stock was no par and no stated value. B. Give the journal entry to record the dividend declaration on December 1, 2009. C. Show the journal entry to record payment of the dividend on January 15, 2010.

 

Problem   10
	Piano Company owns 55% of the voting common stock shares of Keys Corporation. Which of the following is true?
	A. The investment would be accounted for using the equity method. B. The investment would be accounted for by consolidation. C. The investment would be accounted for under the market value method. D. The investment would be accounted for under the amortized cost method.

 

Problem   11
	Gilman Company purchased 100,000 of the 250,000 shares of common stock of Burke Corporation on January 1, 2009, at $40 per share as a long-term investment. The records of Burke Corporation showed the following on December 31, 2009: Net income $575,000 Dividends declared and paid during December, 2009 $30,000 Market price per share $38 Gilman Company should report the following on the December 31, 2009, balance sheet for its investment in Burke Corporation.
	A. $4,218,000 B. $4,000,000 C. $4,124,000 D. $3,800,000

 

Problem   12
	Lyrical Company purchased equity securities for $500,000 and classified them as trading securities on September 15, 2009. At December 31, 2009, the current market value of the securities was $481,000. How should the investment be reported in the December 31, 2009 financial statements?
	A. The investment in trading securities would be reported in the balance sheet at its $481,000 market value. B. The investment in trading securities would be reported in the balance sheet at its $500,000 cost. C. A realized holding loss on the trading securities of $19,000 would be reported on the income statement. D. The investment in trading securities would be reported in the balance sheet at its $481,000 market value and a realized holding loss on the trading securities of $19,000 would be reported on the income statement.

 

Problem   13
	On January 1, 2009, Short Company purchased as an available-for-sale investment, 20,000 shares (15% of the outstanding voting shares) of Daniel Corporation's $ 1 par value common stock at a cost of $50 per share. During November 2009, Daniel Corporation declared and paid a cash dividend of $2 per share. At December 31, 2009, end of the accounting period, Daniel Corporation's shares were selling at $48. At December 31, 2009, the financial statements for Short Company should report the following amounts:
	A. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $1,000,000 $40,000 $40,000 B. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $960,000 Zero Zero C. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $1,000,000 $80,000 Zero D. Long-Term Investment Unrealized Holding Gains/Losses Investment Revenue $960,000 $40,000 $40,000

 

Problem   14
	On January 1, 2009, Heitzman Company purchased the following shares as a long-term investment in available-for-sale securities: Corporation Shares Percent Outstanding Cost per Share Maars 10,000 common (no par) 5% $25 Nassif 2,000 preferred (par $10) 2% $50 The market value of the stocks subsequently were as follows: - Dec. 31, 2009 Dec.31, 2010 Maars Corporation common stock $24.00 $27.50 Nassif Corporation preferred stock $51.00 $50.50 Calculate the balance in the account, "Allowance to Adjust Long-term Investments to Market," on A. December 31, 2009 and B. December 31, 2010.

 

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